Satish Doshi v. General Cable Corporation, 823 F.3d 1032

Background

General Cable restated numerous 2008–2013 public financial statements after discovering a large theft scheme and accounting errors in its Brazilian operations; two restatements were announced in Oct. 2012 and Oct. 2013.
City of Livonia sued General Cable and its CEO (Kenny) and CFO (Robinson) under §10(b), Rule 10b-5, and §20(a), alleging false financial statements, defective SOX certifications, and that defendants acted at least recklessly.
Key factual allegations relied on: (1) ROW (Phelps Dodge) management, led by Sandoval, withheld knowledge of theft and inventory accounting problems from corporate; (2) improper bill-and-hold revenue recognition in Brazil that Robinson personally approved; (3) alleged failures in integration and internal controls and incentive-based compensation.
The district court dismissed the complaint with prejudice for failure to plead scienter sufficiently and denied Livonia’s Rule 59(e) motion to amend with a proposed amended complaint. Livonia appealed both rulings.
The Sixth Circuit reviewed the dismissal de novo under the PSLRA/Tellabs standard, imputing Sandoval’s knowledge (but not his state of mind in preparing public statements) to General Cable and applying the Helwig factors holistically.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether General Cable acted with scienter in issuing false financials	Sandoval knew of theft/accounting errors by Jan. 2012 but delayed reporting until Sept. 2012; that knowledge imputes to the company and, with magnitude/duration of misstatements, supports a strong inference of recklessness	Errors resulted from local theft and override of controls in Brazil; company lacked awareness and acted to remediate once informed; competing nonfraudulent inference stronger	No — Holistic review (Helwig/Tellabs) found plaintiff’s inference of recklessness not as compelling as nonfraudulent explanations; dismissal affirmed
Whether CEO Kenny and CFO Robinson acted with scienter in certifying/approving statements	Their SOX certifications and direction to give ROW deference demonstrate conscious disregard of known control problems and revenue-recognition abuses	They lacked specific knowledge of Brazil theft; alleged lax oversight amounts at most to negligence; remedial actions after discovery undermine scienter inference	No — Allegations against Kenny/Robinson do not create a strong inference of scienter; dismissal affirmed
Whether the district court abused its discretion by denying leave to amend under Rule 59(e)	New/amplified allegations (FCPA disclosures, bill‑and‑hold nondisclosure, clawback exposure, a Jan. 2012 call) cure deficiencies and support scienter	New allegations are untethered to the Brazilian theft, fail PSLRA particularity, are hindsight-based, or otherwise do not strengthen scienter plausibly	No — Proposed amended complaint would be futile; denial affirmed
Whether §20(a) control-person claims survive absent a primary violation	Livonia contends control-person liability follows if primary §10(b) claim stands	Defendants argue primary claim fails, so no derivative control liability	No — Because primary securities claims fail, §20(a) claims were properly dismissed

Key Cases Cited

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (sets the PSLRA/Tellabs standard for pleading a strong inference of scienter)
Helwig v. Vencor, Inc., 251 F.3d 540 (6th Cir. 2001) (enumerates factors for assessing scienter in securities cases)
Omnicare, Inc. v. (In re Omnicare, Inc. Sec. Litig.), 769 F.3d 455 (6th Cir. 2014) (discusses imputing employee knowledge to corporations and applying Helwig factors)
Bridgestone Corp. v. City of Monroe Emps. Ret. Sys., 399 F.3d 651 (6th Cir. 2005) (divergence between internal reports and external statements is key in inferring corporate scienter)
Frank v. Dana Corp., 646 F.3d 954 (6th Cir. 2011) (defines recklessness standard in securities context)
PR Diamonds, Inc. v. Chandler, 364 F.3d 671 (6th Cir. 2004) (discusses multiple obvious red flags needed to infer recklessness)
Konkol v. Diebold, Inc., 590 F.3d 390 (6th Cir. 2009) (rejects hindsight-based scienter allegations)
Ganino v. Citizens Utilities Co., 228 F.3d 154 (2d Cir. 2000) (SEC accounting bulletins do not by themselves create a legal disclosure duty)
Inge v. Rock Financial Corp., 281 F.3d 613 (6th Cir. 2002) (standards for review of denial of leave to amend when amendment would be futile)